Forum at the University of Maryland, with Remarks by Rep. Steny Hoyer

WILLIAM NOVELLI, PROFESSOR AT THE MCDONOUGH SCHOOL OF BUSINESS AT GEORGETOWN UNIVERSITY

ANDREW BIGGS, RESIDENT SCHOLARS AT AMERICAN ENTERPRISE INSTITUTE FOR PUBLIC POLICY RESEARCH

ROBERT BIXBY, EXECUTIVE DIRECTOR AT THE CONCORD COALITION

DONALD KETTL, DEAN OF THE MARYLAND SCHOOL OF PUBLIC POLICY

I.M. DESTLER, STERN PROFESSOR OF CIVIC ENGAGEMENT AT THE UNIVERSITY OF MARYLAND SCHOOL OF PUBLIC POLICY

C.D. "DAN" MOTE, PRESIDENT, UNIVERSITY OF MARYLAND

[*] DESTLER: Good afternoon. On behalf of the Saul Stern Program, the Maryland School of Public Policy and the Concord Coalition, welcome. I'm Mac Destler, the Saul Stern professor of public policy.

Late last fall, I was visiting Saul in his new living space on Connecticut Avenue. He pointed to where I was seated, and he said, "Steny was sitting right there in that chair. And he told me that if he possibly could, he would do the program."

Well, Steny is a man of his word. Steny is here. And Saul himself came within a week of being here, as he so badly wanted to be here.

His passion and determination were key to making this event happen, as they were key to a number of Saul Stern programs on public policy issues of the day. It reflected his deep civic engagement. And this event is now a tribute to Saul Stern.

I ask that we share a short moment of silence in memory of Saul Stern's good and rich life.

It is now my honor to pass the baton to my colleague and friend and boss, Don Kettl.

(APPLAUSE)

KETTL: Thanks so much, Mac. I'm Don Kettl, and I'm dean of the School of Public Policy here at the University of Maryland. And I want to welcome all of you to this discussion about something that is as important to America's future as anything that we can imagine.

This Fiscal Solutions Tour is part of a dramatic change in the debate over the deficit and the national debt. We are now talking not only about what the problems are, which are increasingly clear, but beginning to devise a road map for the future and for the solutions.

There's nothing I think that would have pleased Saul Stern more than to see this enormous crowd together to think about not only what it is that we have as we face problems, but also the kind of solutions that we can imagine, to be able to engage not only individual citizens, but with some of the country's best experts, and to establish the kind of dialogue that creates that link between those of us here in the university community and the broader policy world, as well.

We're in a situation now that is unlike any that we've faced before, not only with the deficit that's rising, but also with a new health care reform bill that's passed that begins to imagine the future, but which leaves so many questions unanswered; a new deficit reduction panel that's been created, where everybody agrees on the problems, but where the solutions are anything but clear, and where our goal now is to try to begin plotting the road map for the future.

That is our enterprise here today, and we're excited that all of you are part of this. We'll have a question-and-answer session at the end. So, as our speakers speak, we invite you to think about what it is that you want to ask them and how we can create the best kind of engagement on these issues that will define not only our future, but that of the nation as well.

It's my great privilege now to introduce the university's president, Dan Mote, who's always been a strong enthusiast and advocate of programs that bring together experts here on campus and to inspire our students to imagine their own futures. With the Capitol just minutes away from us here on our campus, it's easy for students to be able to translate their ideas, their research and, most importantly, action into the pursuit of impact.

So, it's my great pleasure to introduce our president, Dan Mote.

(APPLAUSE)

MOTE: Thank you very much, Don. And I very much appreciate this opportunity to welcome you to this forum. This is really a very impressive opportunity for the university and for me personally.

Don, of course, is in his first year as dean of the School of Public Policy. And, of course, government management is one of his themes. And he's, as you can tell from his presentation, has taken this job on by storm.

But Don, of course, has had a lot of help from his friends and the alumni of the university. And, of course, as we all know, Saul Stern has given us wise counsel and has been a truly splendid man even to me, even though I've not been in the public policy school. He's the kind of person you always wanted to talk to. When he came, he just drew people to him, because as he got you to do what he wanted you to do, you felt really good about it all at the same time.

And, of course, nearly 95 years -- what a splendid life he had. It's just truly remarkable.

But the Saul Stern Professorship of Civic Engagement really sponsors the lecture series which draws policy experts to the campus and those whose careers and thoughts inspire our students and our faculty alike to leadership roles.

Now, Congressman Hoyer, Steny Hoyer, of course, always speaks about his inspiration to public service through just such a contact on this campus. Facilitating interactions between our university community and scholars, and leaders and public policy experts in the region essentially is a focus of the public policy school. We are really very fortunate to have that Saul Stern brought this vision to us.

I also want to thank very sincerely the Concord Coalition, a very well-known and famous organization. And this Fiscal Solutions Tour really is a collaboration between the Saul Stern professor, Mac Destler, and the Concord Coalition. So, the coalition really attracts remarkably bright scholars and policymakers from diverse fields. And I'd like to thank all of them and everyone for co-sponsoring this program today.

The bipartisan basis for the coalition is important for identifying the tractable among the many possible solutions to various problems.

And finally, I'd like to mention that the School of Public Policy has been focusing, of course, on these issues of economic policy a very long time with very well-known names in the school -- Allen Schick, the noted scholar on budgeting; Don Kettl himself; Ken Apful, who is deeply involved in the fiscal issues as commissioner of Social Security, among others. Also, Tracy Gordon -- who may be here today, I'm not sure -- explores public finance and management at the state level.

And, of course, no one is more engaged in issues of fiscal policy than Maryland's own majority leader, Steny Hoyer, who is in his 15th term representing Maryland's 5th Congressional District. As an alumnus and long-time supporter of this school, the University of Maryland in general, and higher education in Maryland and throughout the nation, we are indeed fortunate to have the Majority Leader Hoyer in such a prominent position of national leadership. His dedication to the university and fiscal responsibility really are his hallmarks.

And for that, we all have a great debt to him, and we thank him for coming today. And we wish this whole conference a very interesting and fruitful discussion on this most important topic. Thank you.

(APPLAUSE)

HOYER: Thank you very much, Mr. President.

I'm pleased to be here always on the campus at College Park, where I spent such a long period of time getting out of here. But it was one of the highlights of my life. I tell people that marrying my wife was the only thing that surpassed my going to the University of Maryland in terms of making an impact on my life. And I'm always pleased to be here, and pleased to be here with Dan Mote, pleased to be here with all of you. And I'm certainly pleased to be here with Stephen and Margaret.

Saul Stern came into my life 46 years ago. I was four.

(LAUGHTER)

OK, I'm a politician. We lie. You understand that.

(LAUGHTER)

And Saul Stern -- I worked for U.S. Senator Daniel Brewster. A couple of summers later, Steve Stern, who was a mere child at that point, did an internship. And that's when I got to meet him. And I met his dad at the same time, who was even then very active in public policy and an influence in public policy, a leader not only in the Democratic Party, but much more broadly than that, a leader in our community on so many different issues.

It is not -- this program is not about celebrating the life of Saul Stern. But if any life can be celebrated joyfully and thankfully, it is the life of Saul Stern, who did so much for so many, so frequently. And Steve and Margaret, we're pleased you're here to represent your dad and your father-in-law. And we were all blessed to be a part of his life. Thank you very much.

I want to say how pleased I am to be here, as well, with Dr. Destler, who was our provost, and who did such an extraordinary job, and who is just a wonderful representative of the University of Maryland.

Weren't you the provost? What?

DESTLER (?): Bill (ph).

HOYER: Bill, Bill. What did I say, Max (ph)? Bill Destler, Professor Destler, Dr. Destler. I want to thank him for his leadership.

I want to thank my former colleague, Tom McMillen, for his service to this university in so many different ways. He has made us so extraordinarily proud of not only his prowess on the basketball court, but even more importantly, his prowess academically that showed the University of Maryland to be an outstanding educational institution, as well as a top tier athletic program. Tom, thank you for your continuing fidelity to the University of Maryland and to higher education.

And I also want to say how pleased I am to be here with Ambassador Schwab, Susan Schwab, who has done such -- headed up this school, then went to the administration. And she and I worked very closely together on behalf of a better trading relationship with the rest of the world, to opening up trade, to making sure, as President Obama is saying, if we're going to grow our economy, one way we'll grow it is by trade. And I want to thank her for her leadership.

I'm also honored to be here with my friend, David Walker, and Bob Bixby and Bill Novelli, all of whom I have worked very closely with through the years on various different aspects of the subjects we're going to discuss today.

And I haven't worked as closely with Mr. Biggs, who just got in, Andrew, but maybe we'll do that in the future.

Don Kettl, thank you for your leadership.

This is not a town meeting. If it were a town meeting, every seat here would be filled. Indeed, when I held a town meeting on health care, there were 1,500 people in the auditorium. And the subject we were discussing was not as important as the subject we're discussing today. It was not, perhaps, as consequential, certainly in the long term, as the subject we discuss today.

And I want to congratulate those with this entire effort to educate our public and to look for solutions. It's easy to lament reality, what is. It's difficult to say what should be and how we're going to get there.

We're here to discuss what I believe is America's single most pressing challenge: putting our fiscal house in order.

America's accumulation of debt is a common danger, and it's one that ought to engage the best efforts of liberals and conservatives alike, because while all of us here have our own view on the proper role of government, facts do not have an ideology. The course we are on leads to debt that exceeds the value of our entire economy, to a government that does nothing but pay for entitlement and pay interest to our creditors, and an end to American leadership in the world.

In their book on financial crises, Carmen Reinhart of the University of Maryland and Kenneth Rogoff of Harvard University tell us that public debt exceeding 90 percent of GDP is often a tipping point into a wrenching crisis -- a point we are on pace to reach too soon. We only have to look at Greece to see where the path we are on leads.

We're here because we are committed to changing that course. Getting America out of debt isn't the work of one president, or one Congress, or one bill or, perhaps in this case, one decade. But I believe our work in Congress must be about breaking a long pattern of fiscal irresponsibility and easy decisions, and putting America back on a more sustainable course.

We've just passed, as all of us know, a health reform bill, which some believe -- not without cause -- to be antithetical to the goal that I have just expressed. However, the nonpartisan Congressional Budget Office tells us that the reform bill reduces the deficit over the first decade and is projected to save us $143 billion, and some $1 trillion in the decade after that.

Those savings, however, as David Walker correctly points out, in part are contingent on Congress keeping its pledge and taking hard votes to control health care costs in the years ahead. The Congress does not have a good track record on that objective.

Doing so will take courage, the willingness to value our nation's fiscal future over the political pressures of the moment. It will be essential for the Congress to show that courage. And it will be incumbent on the American people to demand that courage.

That is why I lament the fact that every seat here is not filled. And David, I hope in your sessions to come around the country that the seats will be filled, and that Americans will come as you hope, as Pete Peterson hopes, as Concord Coalition hopes, Bill Novelli, as you've been working to (ph) it (ph), the public does in fact understand -- and the AEI, for that matter. We are all of one mind on this issue.

I understand there is no fiscal slight of hand or silver bullet to eliminate waste and inefficiency in our health care system. I know that no expert can tell us definitively the best steps to cut costs.

But I do know that American health care is the most expensive per capita in the world, and that we don't have better health to show for it. And so, doing nothing on cost in the health care system was not an option.

The bill we passed was the end of a long struggle to cover all Americans, but it is only the beginning of the struggle to control health care costs -- the single greatest driver of our deficit.

I believe this administration and this Congress must be committed to the work, both now and in the future, to returning of our nation to fiscal balance. That is both an intellectual imperative and, in my opinion, a moral imperative.

President Obama has proposed a budget that would cut our deficit in half by 2013. That's the plan. The budget projections, however, are a daunting and foreboding message of how difficult that will be to attain.

The president's budget includes a proposed freeze on non-security discretionary spending -- a powerful sign that Congress must tighten its belt, but, frankly, a mere pittance in the effort to attain balance.

In addition, the president signed a bill to reform weapons acquisition and help control the $296 billion in defense cost overruns identified by the Government Accountability Office.

We have also reinstated the crucial "pay as you go" law that forces Congress to find a dollar of savings for every dollar it spends. Under President Clinton, PAYGO helped turn deep deficits into a record surplus. Let me quickly add, the chip was the major reason we churned deficits into surplus, the growth in the economy.

It was the rapid expansion of the economy that helped to produce the unprecedented balanced budget. Whether it comes to cutting taxes or increasing Medicare benefits, PAYGO is valuable, because it removes from the table the easy and usually unspoken solution. And that is, of course, to pass the cost along to our children.

I was proud to sponsor the PAYGO law, not because it gets us out of our deep fiscal hole, but because it stops us from digging any deeper, theoretically -- David again is right -- theoretically, because it can be waived. We can change the law. Hopefully, we will not. Certainly, we must not.

All of these steps are important to helping control the damage to our budget and our future. But they are together a small part of the solution. That's why President Obama created a bipartisan fiscal commission to tackle the most pressing long-term challenges.

I have long been an advocate for a fiscal commission. In fact, I was the only leader of either party that testified on behalf of the creation of the commission before Senator Conrad and Senator Gregg. I'm glad to see that two proven budget balancers have been appointed as co-chairs -- former Clinton White House chief of staff Erskine Bowles and former Republican Senator Alan Simpson.

Congress must act on the commission proposals at the end of the year. And when I say "must act," we did not pass statutory commission. I was for a statutory commission. We did not pass it. President Obama did what he could do in the face of that failure to set up a commission. And both Majority Leader Reid and Speaker Pelosi and myself -- I schedule legislation -- have pledged that we will put on the floor between December 1st and December 31st the results of the commission.

Now, the results of the commission are not guaranteed. As you probably know, you need 14 out of 18 votes on the commission to make a recommendation. That's an extraordinarily high bar. Whether it can be reached, given the membership of the commission, is problematic.

Now, as you will recall, the Greenspan commission had great difficulty in 1982 in reaching a conclusion, as well. In fact, it was Jim Baker in the White House that finally got a conclusion reached so that we could address Social Security.

To get to that point, both Republicans and Democrats -- that point being where we have a recommendation to put on the floor of the House and the Senate -- both Republicans and Democrats have to come to the table without preconditions. We can't rule out any solution on the revenue or the spending side.

We can't give in to the temptation to turn this defining challenge into the subject of demagoguery or attack ads.

Quite frankly, I was disappointed that Leader Boehner made the suggestion that this commission report prior to the election. Frankly, if it does so, or did so, it would simply become the object of politics in September and October, and every member would be asked to sign a pledge that we will not cut this, we will not cut that, we won't raise this tax -- we won't do anything. And too many of us would have signed such a pledge. Inevitably, we'll have to look at both cuts and revenues -- neither are politically popular -- to begin a realistic reduction of the gargantuan debt that confronts us.

On the side of entitlement spending, our options might include raising the retirement age over a period of years or pegging the retirement age to lifespan. We might also make Social Security and Medicare benefits more progressive while strengthening the low-income safety net.

A number of my colleagues don't like that when I say that. But the fact of the matter is, those who are doing very well cannot expect to get what the very needy need.

On the side of revenues, I think President Obama was correct in refusing to take any option off the commission's table. A useful model for the new commission is the work of President Reagan and Speaker O'Neill to create a more efficient tax code in 1986 -- and, as well, their work to preserve Social Security in 1983, which I've already referenced.

Those are some of the challenges and options for the bipartisan commission to wrestle with.

But my last word of advice is for every one of us -- and particularly in the young people in this audience. This means more to you than it does to me. It means a lot to me, but to you it is crushing your generation with debt. And if we are not careful, if you have your Iraq and Afghanistan, or your H1N1, or your Katrina, you will have no resources with which to respond.

And your generation needs to be energized to demand my generation and those younger than I serving in the Congress of the United States, that we act with courage and morality on your behalf and on behalf of the strength and health of our country.

My last word, as I said is about these issues, they're only the commission's work. They are work of every one of us. Getting out of debt is about looking reality in the face. It's about sacrifices and hard choices.

America needs a fiscal wake-up, because our choice isn't between painful and painless. As Steven Pearlstein wrote in yesterday's "Washington Post," it's -- and I quote -- "whether we will begin to make these adjustments voluntarily, gradually and fairly, or wait until they are imposed on us, harshly and unfairly, during the inevitable crisis that follows."

So much ink is spilled on the question of fiscal responsibility. I'd leave you with the question: responsibility to what? Responsibility to our budget and our future? Certainly. But just as importantly, responsibility to one another.

Elected officials and the public -- and the public -- have a responsibility to one another in this debate. And if either sides fail, we will all fail. Washington has a responsibility to show political courage and not to exploit for temporary advantage someone else's willingness to make those hard choices. Some of my colleagues have criticized Paul Ryan. I don't agree with Paul Ryan's suggestion, but I applaud Paul Ryan's courage for putting something on the table that, in fact, does what he says it's going to do, whether or not you agree with that policy. It is what we all ought to be doing, and not criticizing the other for doing it or using it for political advantage.

What is politically easy is often fiscally deadly. Easy choices are selfish choices, because they leave the work of cleaning up to someone else. Easy choices may be popular, but that popularity is bought on credit.

The people have a responsibility too, to reject easy answers from the representatives, to educate themselves about the source of the debt and the realistic range of ways out, and to understand that lower taxes and higher spending may be superficially popular, but they are a road to ruin.

That's why debt is not a technical puzzle for a few of us. It's a test of character for all of us, I believe we have the character to pass. Let us pray that we will.

Thank you very much.

(APPLAUSE)

BIXBY: Magically it appears. Well, thank you very much, Mr. Hoyer, for your dedication to this issue and for having a fiscal forum on the first really nice, sunny day of the spring. And thank all of you for coming and showing some interest in this issue, which does affect the young very definitely. Thank you for the University of Maryland for hosting us today.

It is a recognition that the difference that the -- the difference of wise or unwise fiscal policies will make for the future of our country and the people who live in it.

I'm going to start by just doing a little Budget 101 to give you an idea of where the budget is today, and what are some of the demographic and health care challenges that face the budget. And then others will look at where we're projected forward, and then hopefully we can get into a good talk about solutions, what we do about it.

So, the first thing to recognize about the federal budget is that this year we're going to run a very big budget deficit, somewhere around $1.25 trillion, or a little bit more.

One thing I would note about the deficit on the -- just on the spending side of this chart, is the amount of net interest at slightly over $200 billion. That's quite a bit. That's the interest that the government pays on the debt, on its borrowing.

To give you some perspective, it's considerably more than we're spending on the wars in Iraq and Afghanistan this year. So, the quick answer to the question of why deficits matter is that one thing they do is they run up interest costs, which is an expense to the taxpayers.

Another thing to notice about that on the spending column is Social Security, Medicare and Medicaid take up around 40 percent of the federal budget right now. Those programs, unlike, say, defense or the other appropriations programs, they're called entitlement programs, sometimes called mandatory spending. The key point is that they grow by benefit formulas and population, and they're not annually appropriated, which makes it a little bit more difficult to keep control.

So, I mean, that gives you an idea of the size of Social Security, Medicare and Medicaid in the context of the current budget.

Now, a lot of economists like to look at the budget in terms of its percentage of the economy, so it gives you some better context than just looking at the dollar figures alone. So the importance of a chart like this, it's showing you what federal revenues and spending, and the resulting deficits or surplus are, in relation to the size of our national economy.

What we've tended to do is spend at the federal level around 21 percent of GDP, and tax around a little over 18 percent of GDP, leaving a deficit somewhere in between.

The key thing to take out of this is really the trend line, not so much -- you can see right now, we're way off the charts, because of the recession, primarily, and the bailouts and attempts to deal with the recession. Revenues have dropped considerably. Spending has gone way up.

And in the past, people would say, well, recessions are always caused by -- or deficits are always caused by recessions and war. So, as the recession fades and we presume the war costs will be winding down, doesn't that mean we'll get back to some sort of a normal, and we won't really have to worry about this?

Well, the answer is "no." Even if you, in the president's budget or the Congressional Budget Office projections, anybody that does these, when you look out, even assuming that we have a robust economic recovery and war costs face, we're on an unsustainable track.

The lines never come even close to coming back together again. And so, that's really part of our problem. We have a structural, built-in deficit, rather than a cyclical one caused by the economy.

Now, a couple of consequences of deficits -- of constant deficits to highlight -- one is we are doing more borrowing from abroad. A growing part of our national debt is owned by foreign investors, which isn't necessarily a bad thing. It's just that the benefit from that flows abroad and not to our own domestic economy. And so, it acts like a mortgage on future national income. And it does make us vulnerable to decisions that are made elsewhere.

Another consequence of big deficits is running up interest costs. That interest that I mentioned that was $200 billion or so this year, is projected to go to around $800 billion within 10 years. That's under the president's budget. And, you know, that would be, for example, more than we spend on national defense.

That's quite a lot. I mean, when you think about it, having interest costs get up more than we're paying, or all of the rest of government, you could say, besides national defense, all of the other appropriations programs, it would be more than we're spending on that. So, it really is a problem.

And why is this going to be happening? Well, two factors. One is the aging of the population, demographics. We're going to have an older -- people are living longer and the baby boomers are getting set to retire. So, that alone is going to drive up the cost of programs like Social Security and Medicare, but that's hardly the only problem.

The other thing is health care costs. And Representative Hoyer mentioned that. Had a lot of discussion about that this year. Rising health care costs, we really have to get a hold of.

But you put those dynamics together -- aging of the population, rising health care costs -- and that's why our budget is on an unsustainable track, even with a strong economic recovery.

So, we've been doing Fiscal Wake-Up Tours with lots of people. Often, the Brookings and Heritage organizations are involved, as well. And what we have found with our Fiscal Wake-Up Tour or a Solutions Tour is, there are certain points that everybody agrees to. It's not a matter of ideology. It's a matter of arithmetic.

Current fiscal policy is unsustainable. Everybody pretty much agrees on that. And there aren't any easy answers like cutting waste, fraud and abuse or growing our way out of it. We should do everything we can to grow the economy. We should cut waste, fraud and abuse. We know it's there.

But the problem is much bigger than that. And it is going to require, when you look at solutions, bipartisan cooperation and a willingness to look at these things without preconditions.

Public engagement is very, very important to this. We can't have backroom deals. The public is going to have to be aware of what the choices are. That's why we're out on the road. We encourage members of Congress to have discussions about this with their constituents.

But finally, even though we talk about a lot of numbers and show lots of charts, it really isn't a numbers issue. This is not a green eyeshade issue. It is a moral issue. It's about the legacy that we're leaving to future generations.

And right now, that legacy doesn't look so good, and so it's really up to my generation, the people that are in charge now, to leave a better, a more prosperous nation behind.

So, let me now turn things over to our next speaker, David Walker, who has occasionally been referenced as the rock star of our tour. And that's a pretty good achievement when you're a CPA and, you know -- I mean, at our age, stage of life, Dave, it's great to be referred to as a rock star, isn't it?

(LAUGHTER)

(APPLAUSE)

WALKER: Thank you, Bob. Thank all of you for coming on this beautiful spring day. Thank you to the University of Maryland, everybody who made today possible. And in particular, thank you to Majority Leader Hoyer, who's a great leader, and who is sincerely dedicated to federal financial responsibility.

And in fact, I've been asked to speak, just for a few minutes, on federal financial responsibility. And since this is April 1, I want you to know that this is not an April Fool's joke, that we really do mean that we need to restore federal financial responsibility. It is not a joke, and it is not an oxymoronic statement.

What I'd like to do is to help you understand how profoundly the budget has changed, and then talk about the future and where do we go from here.

In the last 40 years, federal spending, net of inflation, has grown almost 300 percent -- net of inflation.

It's gone from defense dominating the budget in 1970 to where it's now number two, and it will soon be number three, exceeded by Medicare and Medicaid, and soon to be exceeded by Social Security.

There are three key messages about spending. When you spend more money than you make on a recurring basis, that is irresponsible. When you spend somebody else's money irresponsibly, that is unethical or a fiduciary breach, if you're a fiduciary.

And when you spend somebody else's money irresponsibility and they're too young to vote, or not born yet, that is immoral. And all three things are going on today. And all of us on the podium are dedicated to changing that.

If you look at the total liabilities, the unfunded promises that the federal government has made, they have more than tripled in the last nine years. They've gone from $20 trillion to $62.3 trillion as of last September 30. Medicare alone was underfunded by over $38 trillion as of last September 30. And these numbers go up by $2 to $3 trillion a year on autopilot, even with a balanced budget.

Now, how much is $62.3 trillion? It's over $200,000 per person. It's over $500,000 per family. Median household income in America is about $50,000 a year.

So that means that under our present, imprudent, status quo, do- nothing path, the typical American household has a second or third mortgage equal to 10 times their household income, but no house to back that mortgage. This is our fiscal future under our do-nothing path. The line represents revenues as a percentage of the economy. The bars represent spending. If the bar is above the line -- which it is in every time period -- that's a deficit.

The fastest-growing cost is interest on the federal debt. Within 12 years, the single largest line item in the federal budget -- without an increase in interest rates -- will be interest on the federal debt. If interest on the federal debt increases by 200 basis points, or 2 percent, then the only thing the federal government will be able to do in 25 years is pay interest on the federal debt. That's how bad the numbers are.

It's a simple four-lettered word called math. This is what our debt to GDP, or debt as a percentage of the total economy has been in the past, and what it looks like in the future.

This is not possible. We must demonstrate that we understand that we're on an imprudent, unsustainable path and start making tough choices sooner rather than later, and before our foreign lenders lose confidence in our ability to do so, because we are increasingly relying on foreign lenders to finance our debt.

And if they lose confidence in our ability to put our house in order, then interest rates will go up dramatically, the dollar will decline dramatically, and that will cause something much worse than a recession. We must avoid that.

Yes, we can help to create a better future. Yes, we can put ourselves in a more prudent and sustainable path. But it involves tough choices.

It involves re-imposing tough statutory budget controls to address both discretionary spending as well as some type of triggers for mandatory spending and tax preferences. It involves reforming Social Security to make it solvent, sustainable, secure and more savings-oriented.

It involves reducing health care costs as well as the rate of increase in health care costs, and stabilizing health care as a percentage of the economy. It involves making sure that all health care legislation focuses not just on coverage, but also cost, quality and personal responsibility.

It involves the need for comprehensive tax reform that can help make our system more streamlined, understandable, equitable and competitive while generating adequate revenues to pay our bills and deliver on the promises we intend to keep.

It involves reviewing, reprioritizing and reengineering the base of government, including the waste that exists in defense and homeland security and many other areas of government, and, frankly, many programs and tax policies that just flat don't work.

And yes, we're going to need special processes in order to achieve this, because the regular order is broken. And we should act sooner rather than later, because the longer we wait to act, the greater the chances (ph) have to be. We need to make decisions sooner so that the miracle of compounding can work for us, rather than against us as it is now.

This shows you how much you would have to cut federal spending if you waited to these various dates. These percentages are totally unrealistic. This shows you how much you would have to raise federal taxes if you wanted to solve the problem through taxes, and these percentages are totally unrealistic.

So, yes, everything has to be on the table. We need to act sooner rather than later. We need to achieve a grand bargain.

In closing, this is not just about numbers. This is about people -- my children, my grandchildren and yours. This is about the future of the United States of America. This is about the future of our families.

America is at a critical crossroads. The decisions that are made, or fail to be made, within the next three to five years will largely determine whether our best years are behind us or whether they're ahead of us. And all of us up on this panel are dedicated to doing our part to try to make sure the tough choices are made, so that America stays great and the American Dream stays alive. But you need to do your part, too, and I hope you will.

Thank you.

(APPLAUSE)

And now, Bill Novelli.

NOVELLI: Well, good afternoon, everybody.

We've just heard about the unsustainable fiscal situation in which we find ourselves at this point in the 21st century. Creating solutions to this enormous problem is an absolute imperative.

Now, Bob Bixby pointed out that the aging of America is one important factor in analyzing and dealing with this dilemma. When I was the CEO of AARP, I was giving a talk once in Kentucky. And a woman raised her hand and she said, "Do you know that women live longer than men?"

And I said, "Yes, I do."

And she said, "Well, what are you going to do about it?"

(LAUGHTER)

Well, I wasn't going to do anything about it. But the truth is that both men and women are living longer.

And so, what I want to briefly talk about is the critical need to address our long-term debt crisis in the context of also achieving adequate retirement security for today's and tomorrow's older generations.

Fixing the problem of annual deficits and stabilizing federal debt must be done in tandem with major social needs. And among those needs is a secure retirement. And we can have both, if we have the courage to face up to what has to be done.

A secure retirement is built on four pillars: a solvent Social Security system, as Dave said; individual retirement savings and employer pensions; the ability for people to continue to work and to earn; and adequate and affordable health care coverage and long-term care.

And while we still have a long way to go, the recently passed health care reform legislation is an important step toward that fourth pillar, health care access and affordability.

Congratulations to Speaker Hoyer on that -- Leader Hoyer, excuse me.

(APPLAUSE)

So, I want to focus on that first pillar, on Social Security.

It isn't our biggest problem, but as Bob said, along with Medicare and Medicaid, it constitutes a large percentage of the federal budget. It's important to understand that we can achieve Social Security solvency. We can do so in an equitable way. And in doing so, we can score a big win for fiscal reform, put some points on the board and build momentum for other bipartisan fixes.

Now, like the fiscal problem as a whole, we've got to address both the revenue side and the benefit side of Social Security. We can't just raise revenues and fix the problem. And neither can we just cut spending and find a good solution.

Our Social Security problem is -- program, excuse me -- our program is out of long-term fiscal balance by about 1.7 percent of taxable payroll according to the 2008 Social Security Trustees Report. So, this means that revenue increases and benefit adjustments equal to that amount are needed to bring it back into long-term balance.

Now, among many others -- and we heard this from Leader Hoyer -- Senators Kent Conrad and Judd Gregg of the Senate Budget Committee have said that we can solve our Social Security problem. As some have said, after all, it's just math.

True, it is math. But, of course, it's also politics.

So, what are some reasonable ways to address Social Security solvency?

First, let's look at the revenue side. We could raise the taxable wage base. Restoring the FICA revenue base to about 90 percent of wages -- which was last attained in 1983, up from about 85 percent of wages today -- would eliminate about half of the 75-year shortfall. We might impose a new tax on wages and salaries above the maximum taxable amount.

Now, there are a variety of ways to come at this. But right now, some 90 percent of a millionaire's earnings are exempt from the Social Security tax, whereas 94 percent of all workers pay taxes on every dollar of their earnings.

We could cover all new state and local workers. Some 25 percent of state and local government employees who have other pension systems are not in Social Security. Now, shouldn't that system, our Social Security system, be universal for all Americans, including those who changed jobs? If we think that, then we could cover newly hired workers in those states where they're not presently covered, so as not to disrupt the other pension systems of existing workers.

We could raise revenues by investing Social Security Trust Fund money in other instruments besides Treasury securities. Other systems like Canada's already do this. Now, there are some concerns that this could dominate our capital markets.

But if we invested, let's say, 15 percent of trust funds in a broad stock market index fund, that would only be about 2 percent or so of today's market capitalization. And in addition to bringing in more money, it would have the added benefit of keeping those funds away from the temptation of politicians to spend them on things other than Social Security.

Now the other side of the ledger, the benefit adjustment side.

The older population is already working longer. Facilitating and accelerating that helps create a more sustainable balance between the number of years that people spend working and the number of years they spend receiving benefits.

It helps older workers by reducing the total assets needed in retirement. It benefits our economy with experienced workers. And it helps our fiscal situation by generating more tax revenue.

Next, we need to take increased longevity into account if we are going to make Social Security solvent. Now, one way to do this is to index our benefits to longevity, so that living longer would not automatically mean greater lifetime benefits.

Another way to deal with longevity is to raise the normal retirement age, which is now moving up to 67. Pushing it to 68 or higher would present employment and policy and political challenges. But it should be on the table, as everything else should be on the table, for discussion.

We could also raise the early retirement age for Social Security from 62 to something higher, perhaps 65. Now, this would not directly affect solvency, but it would increase people's income retirement security, their adequacy, and it would be an important signal to employers and employees about work life expectations as longevity increases.

Another possible benefit reduction is to change the formula to scale benefits back for higher earners, and possibly middle wage earners as well, while maintaining benefit levels for lower earners. There are other options to consider.

In conclusion, we have a fiscal crisis staring us in the face. We can deal with it, if we engage the public and our policymakers, and if we get serious about it. And in doing so, we need to take into account important social goals, including retirement security.

Thanks very much.

(APPLAUSE)

BIGGS: Well, thanks very much for having me today. My name is Andrew Biggs, and I'm resident scholar at the American Enterprise Institute in Washington. We had such a good introduction to the budget issues from Bob, and I'll just really talk thematically about the issues we're facing going forward.

The federal budget faces two main problems. One is the aging of the population, which essentially means more retirees dependent on Social Security, Medicare and Medicaid, fewer workers supporting those problems. And the second issue is higher or rising health care costs.

When you combine those two things, we really get this tidal wave of spending coming over the budget that we have to find some way to deal with.

The Congressional Budget office says that to balance the budget over the next 30 years would require around a 30 percent increase in all federal taxes -- income taxes, corporate taxes, payroll taxes. That's not going to happen, so we have to think creatively about how we handle these issues.

I'll first talk a little bit about Social Security, then about health care and Medicare, and then kind of sum things up.

When we have an aging society, the way I see it, we want three things to happen. First, we want people to work more, we want them to save more and we want them to retire later. So, on the Social Security front, I propose several different things.

The first is to reduce benefits for medium and high wage earners, while retaining and strengthening the safety net for people at the low end. Doing that will tend to encourage people to work more, so that they can generate more savings for themselves later on.

Second is institute universal savings accounts outside of Social Security, such as automatic enrollment in 401(k) plans. By building more savings outside of Social Security, we reduce the burden on the program and make it easier to meet its goals.

Third is I would increase the retirement age for Social Security while reducing payroll taxes on lower earners. It's a way of using both the carrot and the stick of saying, we'd like you to work longer, and we're trying to make it worth your while to stay in the labor force. At the same time, when I think of these three goals -- work more, save more and retire later -- that's also one reason why I would try to minimize the use of tax increases in balancing the program.

If you increase taxes, people will tend to work less, because the after-tax reward for working is smaller. They'll tend to save less, because they'll have less after-tax wages to save. And they'll tend to retire earlier, because Social Security benefits will appear higher relative to the take-home pay they have while they're working.

So, I think when we put all these things together, we're going to have to look at some tough choices. We ultimately will have to look at tax increases. We might want to look at things like changing the way the Consumer Price Index is adjusted to account for COLAs and for indexing of tax rates. But I think mostly for Social Security, you want to focus on the benefit end, and you want to increase individual savings.

Moving on to health care costs, a lot of the increase in health care costs and health care spending is totally justifiable. There's new technologies out there that are great, that people want. People have higher incomes today, so they want to spend more on health care.

But much of the rise in wasteful spending comes from the fact that patients and doctors today have no real incentive to monitor costs and to care about cost effectiveness.

If you think back, in 1960, half of health care spending was paid out of pocket. That meant you paid 50 cents of each dollar out of your pocket, and it was an incentive to care about how much you spent and how cost effective it was. Today, that's only about 12 cents out of each health care dollar is paid out of pocket.

So, asking why we spend so much and waste so much, it's a little bit like asking somebody in an all-you-can-eat restaurant why they're eating so much food. There's no reason not to.

There is evidence that if we shift from a system of high premiums and low deductibles, to low premiums and high deductibles, giving people some skin in the game, that they'll try to save more on their spending, and they'll try to spend a little bit more effectively.

What are our prospects for success? And I think what we've seen here is how crucial these goals are and how important it is that we address them. I'm a naturally optimistic person, and I've got to say I've never been gloomier than I am today.

And the sad thing is, you know, health care had to be reformed, but there is a point that we're spending a couple trillion dollars on new programs when we haven't balanced the programs that we have. We've expanded Medicaid. We've taken some tough choices on Medicare of cutting benefits, increasing taxes, but that money's going towards other spending, not towards fixing the program.

So, when you go back to Medicare beneficiaries or Medicare participants and say, hey, you know, we're going to have to cut your benefits some more or have to raise your taxes some more, don't be surprised if they're not too keen on doing that.

I'm fully supportive of the deficit commission that President Obama has put together. At the same time, I'm skeptical, or I'm gloomy about the prospects for success.

In the "New York Times" last week, an anonymous Obama administration official said, well, because we worked on Medicare and Medicaid in the health bill, they're probably going to be off the table for the commission. Likewise, the Senate passed a resolution saying that there could be no expedited consideration of Social Security, of any recommendations on Social Security that come out of the commission.

It tells me that in Congress there are too many people with just a lack of seriousness and a lack of maturity about these issues. These are existential threats to the federal budget, and you have people who are simply willing to dodge things.

I saw an interview on television last weekend with a Republican running for the Senate. And they asked him, how would you fix Social Security? He says, well, we can't increase the retirement age or cut benefits. Let's focus on waste, fraud and abuse.

When somebody says they're going to fix Social Security by focusing on waste, fraud and abuse, that's a way of saying "I'm not serious."

Several weeks ago I laughed a little bit. I read news stories about Greek students protesting in Athens about government spending cuts at the same time that the government was about to default on its debt. And you laugh. You say, oh, those Europeans, they're so silly. Can't they realize what's going on?

And yet, if you look around at what's going on in the country here, we're spending more and we're showing lack of seriousness at a time when the deficit and the debt is getting larger and larger.

So, if Congress doesn't act soon and act in very serious ways, we're going to have to think less about how we fix these programs, and more as individuals about how we protect ourselves against the eventual collapse of these programs.

People in developing countries, when they invest their money they have to think, well, what happens if we have high inflation? What happens if our currency collapses? What happens if taxes rise? So, they're defensive about how they think about those things.

One of the great things about America is that we can think offensively. We can think, how do I find the best opportunities? How do I make the best investments for the future? And that's one of the reasons why America is such a great place to do business.

With the budget deficit rising, the debt rising, though, people are going to have to start thinking defensively. And I think that's really a sad prospect going forward. So I'm very, very happy that we're having this forum today, and I'm particularly thankful to Congressman Hoyer for proposing it. But I think we need more and more people like you, and more and more congressmen like Representative Hoyer, who are willing to take on these questions.

Thank you.

(APPLAUSE)

(UNKNOWN): Thanks (inaudible) for those (inaudible) conversations. And this is a forum with lots of questions, we hope, from you.

Before we start, just a quick round of introductions again: Bob Bixby, who is the executive director of the Concord Coalition, a nonpartisan organization devoted to understanding the nation's fiscal responsibility; David Walker, who is the president and CEO of the Peter G. Peterson Foundation, and previously comptroller general of the United States; Bill Novelli, professor in the McDonough School of Business at Georgetown, and former CEO of AARP.

We have Andy Biggs, who is resident scholar at the American Enterprise Institute in public policy research, and formerly principal deputy commissioner of the Social Security Administration; and House Majority Leader Steny Hoyer, now in his 15th term representing the 5th District of Maryland.

Now, let's start, if we might have questions.

HOYER: I don't have a question, but I want to apologize, because I'm going to have to leave, because, as I've told my other panelists, I have a meeting in southern Maryland, and about an hour-and-a-half from here, at 6:30. So, it's a little more than an hour-and-a-half.

But I want to thank all the panelists.

I think one of the things that you saw -- and you have a variety of different shades of conservative to progressive liberal, or whatever you want to call it, on this panel. But I think you see almost unanimity of view on (inaudible) the scope of the problem and the places where we need to look.

And so, I feel very comfortable that the answers they give, for the most part -- Novelli would be here to protect me on the health care...

(LAUGHTER)

... which I do believe is going to bring down costs. But David is right. It'll only bring down costs if the Congress has the courage to make the determinations that we said we were going to make. David, you're absolutely right on that.

But I apologize. I thank Dr. Mote (ph). Bill (ph), I thank you for your hospitality with respect to the leadership of this effort. It is, I think, the most critical that we confront as a country.

Thank you all very much.

(APPLAUSE)

(UNKNOWN): A (ph) point (ph) to the members of the audience who are (inaudible). If you have a question, please stand. Come (ph) to (ph) the middle and (inaudible).

How does one break through here and achieve some level of bipartisan (inaudible)?

(UNKNOWN): Well, first, I think we need nonpartisan solutions that can achieve bipartisan support. I think we also have to recognize that, when you look outside of Washington's Beltway, that 42 percent of Americans are political independents. And that's going up. I happen to be a political independent.

And so, the first three words, frankly, of the Constitution are going to have to come alive. People are going to have to send a signal to Washington to say that we know that we're spending more money than we take in, we know that we've got to change course, and to put pressure on elected officials, whether they be Democrat, Republican or independent, to make those tough choices. And frankly, not automatically causing them to lose their jobs if they do.

We're seeing evidence through public opinion surveys that 80 percent of Americans are concerned about escalating deficits and debt and increased reliance on foreign lenders. We're seeing evidence at the ballot box that people are not happy with the status quo.

And so, as a result, the people are going to have to continue to speak out, and it's going to take special commissions in order to set the table for a tough vote where we can make progress on multiple fronts at once -- budget controls, Social Security, health care costs and tax reform and revenue enhancements.

We need to make progress on multiple fronts at once.

(UNKNOWN): A question here.

QUESTION: (OFF-MIKE)

(UNKNOWN): I think it's working. Just speak loud (ph). Just go ahead.

QUESTION: (inaudible). Good. My question has two parts. So the first part is, it was mentioned about the (inaudible) the debt is owned by foreigners, and we (ph) pay (ph) substantial interest on that debt. However, some (inaudible) debt is owned by Federal Reserve. They own (inaudible), right.

So, the first part of the question, what is percentage of the public debt owned by the Federal Reserve?

(CROSSTALK)

(UNKNOWN): We don't know.

(UNKNOWN): (inaudible) next part. OK, let's move to the next part.

(UNKNOWN): A lot more than it used to be.

WALKER (?): Well, you know, I don't have the percentage, but they have been more active in the market, because in effect they are the lender of last resort.

So, why not Federal Reserve buys more of the public (ph) debt, buys it (ph) from foreigners? In which case, government doesn't have to spend (inaudible) interest (inaudible).

So, (inaudible) Federal Reserve was not mentioned in this (inaudible). (inaudible), the Federal Reserve was not. So, why Federal -- what prevents Federal Reserve to take more action (inaudible) the debt?

WALKER (?): You know, frankly, I consider that self-dealing. You've got one hand buying debt from the right hand, which is trying to distort market conditions. You know, you can end up having an impact on the market in the short term, but you can't change market forces over time.

I mean, frankly, that's, in my opinion, a larger version of how the government gas taken in all the Social Security revenues and spent it on something else, and lent it to itself. I think that's part of the problem, not part of the solution.

In fact, if you end up looking at the Federal Reserve's balance sheet, and if you recognize that Fannie Mae and Freddie Mac are not consolidated into government's balance sheet, our situation is actually worse than the numbers that we showed, because they don't consider the Federal Reserve, and they don't consider Fannie Mae and Freddie Mac.

(UNKNOWN): Others? Andy?

(APPLAUSE)

(UNKNOWN): Got a question back (inaudible).

QUESTION: Nancy Applegarth, School of Public Policy. The last speaker described the fiscal situation as an existential threat to the country. And all of you would probably agree with that characterization.

And I'm interested that most of your solutions have focused on Medicare and Medicaid spending and Social Security spending as two big parts of the budget that I could say really are huge (ph) here (inaudible), and said very little about spending on military security.

And so, I'm curious to know from each of you, do you think that the military spending should be treated differently than any other part of the budget? And if so, why?

(UNKNOWN): Well, I'll go first on that. No, I don't. I think that in looking for solutions, all parts of the budget must be on the table, including revenues. I think that there's certainly opportunities for savings in the Pentagon budget.

The reason to focus on the larger programs -- Social Security, Medicare and Medicaid -- and they're all about the same size right now. You know, if you look at that, if you put Medicare and Medicaid together, Social Security and defense are all somewhere around in the high 600s, around $700 billion.

So, you might say, well, it's sort of an equal problem. And if you're looking at today's budget, that may be the case. But when you look at the factors that are driving the growth of federal spending over time, it's aging of the population and the health care costs, which will not have the effect on the military that it has on Social Security, Medicare and Medicaid.

So, actually, projections on military spending (inaudible), it's right around 4 percent, a little over 4 percent of GDP right now, and it probably will fall a little bit as the war winds down. Whereas the big three entitlement programs are somewhere north of 8 percent right now and will go to -- double in about the next 30 years or so.

So, it's not what's contributing to the deficit now, but what is going to contribute to this long-term structural problem that I described at the beginning. And that's why I'd focus more on those programs, but everything needs to be on the table.

WALKER: As the former comptroller general of the United States and head of the GAO, I can tell you there's a tremendous amount of waste in defense and in homeland security, and many other areas of government. And so, nothing should be off the table.

I think that's important.

A lot of our defense spending is based upon past threats. It's not focused on current and future threats. We have huge problems with regard to our acquisition and contracting systems.

Frankly, the all-volunteer force is probably not sustainable from a financial and fiscal standpoint. It is very, very expensive.

And so, yes, it's got to be on the table.

BIGGS: If I could just touch quickly on that. There's a joke ph) among (ph) people who work in entitlements, that with the growth of Social Security, Medicare and Medicaid, pretty soon the government will be nothing other than a pension plan with an army.

And, you know, if you look at the math, that's what you end up with. The danger though is, if you live (ph) long enough, you're a pension plan without an army.

I think about this. I went to grad school in the U.K. My older brother's in the military, and he served in Kosovo. And I remember when the Yugoslavian conflict started out, the European Union said, well, this will be our chance to demonstrate that we can act in a concerted manner, take military actions and deal with (inaudible) issues. And at the end (inaudible) they couldn't, because they've become pension plans without (ph) an army.

Now, you may or may not agree with that particular military action or the ones we have in place now. But it seems to me that having the capacity to do those things when we feel they need to be done is a very important thing for the federal government to have.

And so, if we find -- if we're spending 4 percent of GDP on the military now, the question is, how much lower do you want it to be? And how much breathing room will that give us? (inaudible) I think the answer is probably not a lot.

(UNKNOWN): (inaudible) here.

(UNKNOWN): May I...

(UNKNOWN): One more answer, OK...

NOVELLI: Yes, I would like to say that I very definitely think that defense needs to be on the table to be talked about.

But when we were talking earlier about how difficult this is going to be, and the first person to ask a question asked about the bipartisan challenges here, tackling that along with the things we're talking about would probably double, triple or quadruple the complexity of all of this. That doesn't mean that we shouldn't put it on the table, however.

(UNKNOWN): Got a question here.

QUESTION: My question is (inaudible) challenge (inaudible). My question is (inaudible) army (ph). And so, seems to me like (inaudible) fiscal reform. The outcome might be one that (inaudible) so (inaudible) United States (inaudible).

WALKER (?): Well, first, my personal view is, our economic growth is going to be slower than historically has been the case, that our savings rates are going to be somewhat higher, and our consumption levels are going to be somewhat lower, and that our assumption of debt -- this is from a personal standpoint -- is going to be somewhat less, because I think the American people get it. And they are already adjusting their behavior. And whether or not that will change in the future at some point only time will tell, but their behavior has changed.

You know, I think we have to look at the leading indicators. And the leading indicators are a matter of concern, not just with regard to fiscal policy and public finances, but also with regard to K through 12 education, basic research, critical infrastructure and a variety of other things that ultimately will determine whether or not we're going to be in a better competitive posture going forward.

And so, when you look at all those things, I think, yes, America is a great country and will stay great. But if we want to continue to be the force that we are today, we're going to have to change course, and we're going to have to make tough choices.

(UNKNOWN): I don't think it's really a matter of choice that we do something. It's either that we could do something now in advance or go over a cliff eventually and wait to see.

So, you know, people can have a good, legitimate debate about the size of the debt or the size of a deficit that a country should have. But the course that we're on is by any definition unsustainable. And so, some choices need to be made. That's -- you know, that's unavoidable (ph).

(UNKNOWN): Next question right (ph) here (ph).

QUESTION: David Walker, you put forward a rubric (ph) of nonpartisan solutions that would get bipartisan volumes (ph). Could you or others comment, are there either -- will you see either incremental low-hanging fruit or (inaudible) nonpartisan kind of solutions, or trade-offs in seeking (ph) some of both sides' best ideas and building a coalition to start (inaudible) those votes (ph)?

(UNKNOWN): A good question.

WALKER: I think the two easiest things to possibly gain consensus on would be statutory budget controls that would take effect after the economy has recovered, and after unemployment is down significantly, because you don't want them to take effect before that.

And secondly, I think there's a Social Security deal to be had. And I think there's been a Social Security deal to be had since 1998, but it's just a matter of the president and congressional leadership wanting to go for it.

Because -- and I think we need to do that, not because it represents the biggest challenge, not because it's a media (ph) crisis, because we get some points on the board. And we enhance public confidence, we build credibility and we gain momentum to be able to take on much tougher stuff.

BIGGS (?): I would just -- I would quickly say I agree with that. If you listen to what Bill Novelli and (inaudible) talked about Social Security, we didn't agree 100 percent, but there were elements that we agreed upon. That's the easy fix. We understand what we need to do to fix this program. We understand the pros and cons. It's a mature policy issue.

Health care and Medicare is a lot trickier. So I think making -- or starting the Social Security (inaudible) makes (ph) some (ph) sense.

BIXBY (?): I'd just like to add that, you know, I've been following the Social Security debate pretty closely for a long time, as we all have. And I was really struck listening to Bill and Andrew, who haven't always been on the same side on the Social Security reform debate, but they were saying things that were very similar, and things that I think you could get a bipartisan agreement on, if you could do it out of the context of political advertising (ph) and people trying for political reasons to pull people apart.

If you listened to, you know, what Andrew and Bill were saying, there is this, as Dave said, a deal to be made.

One of the things that concerns me about the health care bill is that a lot of the so-called low-hanging fruit was taken in that bill as an offset to pay for the new benefits. And to me, that's the thing that's most fiscally concerning about that, because even if all the savings are achieved, and all the tax increases actually go into effect, you're still on an unsustainable course, and you've used up a lot of that so-called low-hanging fruit.

I don't know if there's anything that's all that low hanging in this context. I mean...

(LAUGHTER)

NOVELLI: I want to add to that, too. There is no low-hanging fruit, but hopefully there is some medium-hanging fruit. And I think Social Security is an example of this.

You know, everything on the Hill is so gridlocked and so politicized. But there is a chance. There are people up there who both understand the Social Security situation, and they do want to do something.

It may be that we have to wait till after the November elections, but the opportunity is there.

(UNKNOWN): Next question?

QUESTION: (inaudible) graduate student. I'm a graduate student from the policy school. As a representative of the next generation, I was just wondering a couple of questions. First, what can we do as the next generation besides just writing our congressman? And secondly, how are you engaging our generation, such as (inaudible) media, other forms of (inaudible)?

BIXBY: Wow. Is Stefan still here? You know, our youth outreach coordinator has -- he was here, and he was with me at a forum last night, and I know he had to leave for another engagement. So, I guess he's not still here. I wish he was.

Well, we have lots of Concord field staff around. And what we have is a specific youth outreach program of the Concord Coalition. I'm probably not the best one to describe it, but it does -- you know, Stefan really is in touch with all sorts of other youth groups. I don't want to say that. It sounds pejorative. But I mean young people that are involved in lots of issues. And some of them are interested in fiscal issues, and some of them have different views on it.

But our outreach is to try to get people engaged and encourage them to do activities on campus -- and engage in social media, because that's really what your generation brings to the table that the rest of us don't. And it really is a very engaged generation. And so, we're trying to, through our youth outreach efforts and activities on college campuses, just to raise the awareness of fiscal issues.

And so, I would encourage you to get in touch with Stefan Byrd- Krueger at the Concord Coalition. He's much more tapped into the youth outreach network than I am.

(UNKNOWN): Maybe I can just touch on some not just for young people, but really for everybody out there thinking about these things. I think the key is, don't punish politicians. As much as I bad-mouth members of Congress and said awful things about them, don't punish them for telling you things you don't want to hear.

When I think back to the presidential primaries, both Democratic and Republican side, I remember then-Senator Obama saying everything has to be on the table on Social Security. I remember talking to people who worked for him and saying, he's really interested in the issue. He got punished in the primary and he retreated to a position, which is not simply (ph) realistic (ph). It's (ph) a small tax increase on high-income people, which is now been used for something else, I think.

But they don't do this because they're bad people. They do it, because if they continue to tell you the truth, a lot of people out in the public (ph) say, I'm not going to vote for that guy. You had the same thing happen on the Republican side, where seemingly reasonable, moderate people suddenly back off and become intransigent.

The problem isn't simply members of Congress who we can all condemn and act as if we are better than them. The problem really lies out with the American people who are not willing to have difficult things told to them, and they're not willing to take difficult choices.

WALKER: There's two things. And it's especially for young people, but it's only (ph) for everybody, but young people even more so.

Things were (ph) being done to you, not for you. Your future is being mortgaged at record rates. Relevant (ph) investments in your future are being cut down, because so much of the budget is on autopilot. And the country is facing increasing competition in the global marketplace. All right?

So, you need to be informed. You need to be involved. Young people need to start using social networking in order to let their voice be heard.

But in addition, you have to recognize, in addition to trying to get elected officials to make tough choices sooner rather than later, but allow them to tell you the truth and not punish them when they do the right thing, even though it may involve some shared sacrifice in the short term for greater gain over time, (inaudible) has overpromised and under-delivered. It's going to have to restructure its promises, and taxes are going up.

So, for your own personal financial planning, you need to understand that. The good news is, if you're young, you know, the power of compounding can work for you, if you start early enough and make wise choices.

Last thing, at the Peterson Foundation we have a special effort with regard to young people as it relates to social media, Facebook, Twitter, movies, YouTube pieces, you know, games like Debt Ski, MTVU. We've had an alliance with MTVU. We do things with Concord and others on college campuses, et cetera.

And stay tuned for I.O.U.S.A. Solutions, which comes out in two weeks. We're going to give it away, just as we gave away the 30- minute of I.O.U.S.A.

So, it's really important to engage a broad cross-section, but especially young people, because they bear a disproportionate share of the burden.

(UNKNOWN): That's great.

(UNKNOWN): Thank you.

(UNKNOWN): Thank you. That works. Next question.

QUESTION: Hi. Tracy Gordon, School of Public Policy.

So, since this is a fiscal solutions forum, I thought I would ask about one particular solution, which is a value-added tax, or a VAT. And as you all know, sales taxes have traditionally been the domain of state and local governments.

And some very nice work that Mr. Biggs did recently and that was reported on the "New York Times," shows that state governments, when you look at their explicit and implicit liabilities, are also in a world of hurt right now, and some of the work that Mr. Walker pioneered at the GAO.

So, I just wondered, given the situation that states are in, does it really make sense to ask them to bail out the federal government by raiding their tax base, basically?

BIGGS (?): I think a value-added tax is a form of sales tax that, if you're going to have a sales tax and (ph) a value-added tax (inaudible) self-enforcing. So you have fewer problems with (inaudible).

I think -- it would not be my choice. My choice would be scale (ph) down the programs, try to minimize increase (ph) in taxes.

At the end of the day, though, if you're going to a European- sized welfare state, you have to start taxing the way they tax. They tend to tax by (ph) payroll taxes and (inaudible) value-added taxes. You can't finance all these programs with just, you know, (inaudible) tax rates on people making over $250,000 (ph).

So, it is a question of however -- whatever level of government we're going to have, we need to finance it as efficiently as we can. The question is whether people are really (inaudible) to swallow it.

It might be the least bad of those tax choices (inaudible).

NOVELLI: Did you say European welfare system?

BIGGS (?): European-sized welfare...

NOVELLI: Sized welfare system. So, this is part of the problem.

You know, we don't agree on everything. We agree on a lot.

I don't know if anybody saw, I think it was a Charles Krauthammer column last week in the "Washington Post," where he made a VAT sound like the coming of socialism.

You know, the idea of taxing consumption and looking at a VAT, I mean, as we've said repeatedly -- I think everybody said it, including Leader Hoyer -- everything needs to be on the table. We really need to take a serious look at this.

It will take Americans a long time to figure out what it is and to come to grips with it. But lots of times, a novel idea of 20 years ago becomes serious, mainstream thinking today.

So, yes, we should look at it.

WALKER (?): State and local governments have their own problems, because of Medicaid costs, underfunded pension plans, unfunded retiree health care, deferred maintenance and other critical infrastructure costs, higher education expenses, et cetera.

And they're going to end up hitting the wall before the federal government, because they can't print money, and because they have to be more concerned about their credit ratings. Ultimately, the U.S. government's going to have to be concerned, but the states have to be concerned about it now.

The problem is, how are we going to deal with this fiscal gap? And my personal view is, everything has got to be on the table. And yes, we're going to have to have more revenues, because the government has promised too much and waited too long to solve the problem at historical levels of 18.3 percent of GDP. That's federal revenues as a percent of GDP, historically over the last 40 years.

I think the problem is primarily going to have to be solved on the spending side -- more on the spending side than the revenue side -- but we're going to have to have some more revenues. And then the debate is, what form of revenues?

And clearly, some type of a consumption tax, VAT or otherwise, I think has intellectual merit. But it needs to be coupled with statutory budget controls and other spending constraints, or else the American people aren't going to go for it. They're not going to go for it unless it's coupled with other things.

And frankly, the VAT might have to be earmarked for health care, where there's no doubt we're going to have to have more revenues. And, you know, you need to coordinate it with the states. And who's to say you can't have some revenue sharing, or some integration, you know, in order to try to solve the problem.

(UNKNOWN): Well, I just -- because that was exactly the point that I was going to make. I just want to follow up on that, because I think we could think a little outside the box on that.

If you did go to the VAT tax, and you did cut into the states' revenue base on consumption, you might think of some sort of sharing arrangement with that. Because it is something that is going to have to be on the table for reasons that everybody explained (ph).

KETTL (?): On behalf of all of us here at the University of Maryland, we want to thank all of you for joining this conversation.

When Saul Stern created this forum, his vision was to create opportunities for members of the university and academic community to engage with policy experts, to have the conversations that we have had, to try to find ways of advancing solutions to the important and critical problems facing the country.

That's just what we've had here today. And we're grateful to Saul Stern for his vision.

From all of us here at the University of Maryland School of Public Policy, thank you so much for joining. Thank you so much to the members of our panel. Good afternoon.